Background: We have previously reported that ICOS-Ig expressed locally by a graft induces a perigraft cellular accumulation of CD4 + CD25 + Foxp3 + T cells and specific xenograft prolongation. In the present study we isolated and purified CD4 + CD25 + T cells from ICOS-Ig secreting grafts to examine their phenotype, and used knockout and mutant mice to examine molecules involved in graft prolongation. Methods: The mechanism of xenograft survival observed with ICOS-Ig-secreting PIEC grafts was examined using selected knockout mice. CD4 + CD25 + T cells were isolated from xenografts secreting ICOS-Ig for phenotyping by flow cytometry, gene expression analysis by real-time PCR and regulatory function by suppression of xenogeneic or allogeneic primed CD4 T cells in vivo . Results: Graft prolongation is dependent on a pre-existing Foxp3 + Treg, IL-10, perforin and granzyme B. CD4 + CD25 + Foxp3 + T cells isolated from xenografts secreting ICOS-Ig have a phenotype consistent with nTreg but with a higher expression of CD275 (ICOSL), expression of CD278 (ICOS) and MHC II and loss of CD73. Moreover, these cells are functional and specifically suppress primed T cells in vivo . Conclusions: Expression of soluble ICOS-Ig by a xenograft generates antigen specific CD4 + CD25 + Foxp3 + T cells that mediate specific graft prolongation using at least 3 key mediators: IL-10, perforin and granzyme B